It is an act to provide licensing and regulation of Islamic banking in Malaysia. The Act inter alia has provisions on the financial requirements and duties of an Islamic Bank, ownership, control and management of Islamic banks, restrictions on its business, powers of supervision and control over Islamic bank.
5.1 Legal Framework
The primary difference between Islamic banks and the commercial banks is the avoidance of riba in Islamic banks. The activity of the Islamic banks is based on the transaction that allowed in Islam. The activity of the Islamic bank must follow the Shariah principles. There includes mudarabah, ijara, bai bi-thamin and murabahah.
5.1.1 Principles of Islamic Finance
Business transaction are based on Shariah
Absence of interest (riba)-based transaction
Prohibition of Gharar and gambling
Money is not a commodity
Supported by underlying economic transactions
Multi-faceted roles of Islamic banks
Stylized balance sheet of Islamic banks
5.1.2 Objectives:
-to promote,foster and develop the application of Islamic principles, law and tradition to the transaction of financial, banking and related business affairs.
5.1.3 Main principles of Islamic bank:
prohibition of interest in all forms of transactions
undertaking business under the legitimate profits
giving zakat
All Islamic banks and Islamic Banking Scheme (IBS banks) set up the Shariah Committees to guide them on Shariah principles and to make sure they function in a manner that in line with Shariah.
5.1.4 The importance of Shariah governance
Place great emphasis on strong corporate governance values and structure, transparency, disclosure of information and strict adherence to Shariah principles.
Ensure effective oversight, responsibility and accountability of the board of directors, management and Shariah committee.
Serves as a guide towards ensuring an operating environment that is compliant with Shariah principles at all times.
Provides the foundation for the practise of Islamic finance through the observance of the tenets, conditions and principles propagated by Islam.
bring confidence to the general public and the financial markets on the credibility of Islamic finance operations.
In Malaysia, the Bank has established the necessary mechanism for the Islamic financial system to operate in a manner consistent with Shariah muamalah principles, with a clearly defined institutional arrangement within Islamic financial institutions regulated by the Bank. A two-tiered Shariah governance structure has been established, comprising an apex Shariah advisory body at the Bank and a supervisory Shariah committee formed at the respective Islamic financial institutions.
5.1.5 Shariah Advisory Council
-Central Bank Malaysia act 2009 has granted the authority to the Central Bank of Malaysia for the establishment of the Shariah Advisory Council as the highest and sole authority to be referred by the civil courts in dealing with Islamic banking and finance cases in Malaysia.
-The highest Shariah body set up at Bank Negara Malaysia to advise the bank on the banking business in order to ensure that they function in a manner that is approved by the religion of Islam.
5.1.6 Objectives of Shariah Advisory Council
To disseminate Shariah resolutions issued by the Shariah Advisory Council.
To facilitate Islamic financial Institution in developing financial products.
To promote harmonization of Shariah interpretation in Islamic Finance industry.
5.1.7 Participated Institution
The Shariah shall be applicable to all Islamic financial institution regulated and supervised by Bank Negara Malaysia. The Islamic financial institutions are:
An Islamic bank licensed under the Islamic Banking Act 1983
A financial institution licensed under the Banking and Financial Institution Act 1989 (BAFIA 1989) which is participate s in Islamic Banking Scheme
A development financial institution prescribed under the Development Financial Institution Act 2002 (DFIA) which carries on Islamic Banking Scheme
A takaful operator registered under the Takaful Act 1984
5.1.8 Functions of Shariah Advisory Council
The Shariah Advisory Council on Islamic Finance shall be established by the Central Bank of Malaysia by virtue of section 51 and the Council shall be the authority for the ascertainment of Islamic law for the purposes of Islamic financial business. The Council is given authority to determine its own procedures in carrying out their duties under the Act.
The functions of the Shariah Advisory Council are listed under section 52. Its functions are:
(a) To ascertain the Islamic law on any financial matter and issue a ruling upon reference made to it in accordance with Part VII of the Act.
(b) To advise the Bank on any Shariah issue related to Islamic financial business, the business activities or transactions of the Bank;
(c) To provide advice to any Islamic financial institution or any other person as may be provided under any written law in force in Malaysia;
(d) Other functions as may be determined by the Bank.
The members of the SACl of Central Bank in Malaysia for 2008/2010 term are:
1. Dr. Mohd Daud Bakar (Chairman)
2. Dato' Dr. Abdul Halim Ismail (Deputy Chairman)
3. Y. A.A.Tun Abdul Hamid Haji Mohama
4. Y. Bhg. Tan Sri Datuk Sheikh Ghazali Hj. Abdul Rahman
5. S.S. Dato' Haji Hassan Haji Ahmad
6. Y. Bhg. Datuk Haji Md. Hashim Haji Yahaya
7. Y. Bhg. Dato' Wan Mohamad Dato' Sheikh Abdul Aziz
8. Assoc. Prof. Dr. Engku Rabiah Adawiah Engku Ali
9. Dr. Mohamad Akram Laldin
10. Dr. Muhammad Syafii Antonio
(Source: Official website of Malaysia International Islamic Finance Centre at www.mifc.com)
5.1.9 two types of deposits that provided by the Islamic Banks:
saving account or current account
investment account
The current account is operated in the same way as the conventional banking system, but the saving and investment account are operated in a different way. They are operated as same as the other commercial bank. There are no interests payable to the customers that having current account and deposit accounts. In addition, The Islamic banking business provided by the bank must follow the Shariah principles. The methods are Mudarabah, Musyahrakah, Baibithamin Ajil ,Murabahab, Al-Ijarah and Al-Wadiah.
Mudarabah
Mudarabah is a profit sharing arrangement between two parties (an investor and the entrepreneur). The investor will supply the fund to the entrepreneur for his business venture. The investor will get back the return based on a profit sharing ratio that has been agreed before. The principle of Mudarabah can be operating in 2 ways: i) between a bank and the capital provider ii) between a bank and the entrepreneur. The losses that incurred shall be borne by the capital provider. In takaful industry, mudarabah contract is used as one of the operational model as well as being applied for investing the takaful funds.
Musyarakah
Musyarakah refers to a partnership or joint business venture to make profit. It is an agreement between two or more partners, whereby each partner will provide funds to the business venture. Profits made are shared by the partners based on an agreed ratio. However, losses that incurred will be shared based on the ratio of funds that invested by the partners.
Baibithmin Ajil
Baibithmin Ajil refers to the sale of goods on a deferred payment basis at a price, which includes a profit by both parties-an investor and entrepreneur. It is under the financing facility.
Murabahah
Murabahah are refers to the sale of the goods at a price which includes a profit margin that are agreed by both parties (an investor and entrepreneur).In Murabahah, the actual cost of the asset must be clearly stated at the time of the sale agreement.
Al-Ijarah
Ijarah means lease, rent or wages. This principle usually used in financing consumer goods. For instance, the motor vehicles, plant, office automation for a fixed period and price. It is separate to two contracts involved Ijarah contract (leasing or renting) and Bai contract (purchase).
Wadiah
Wadiah means custody or safekeeping. In Wadiah arrangement, a bank is act as a keeper and trustee of the funds.you will deposit your funds or assets in a bank for safekeeping. The bank will guarantee the safety of the entire amount of the funds or assets.
5.1.10 Islamic Principles
No.
Islamic Principle
Clarification
Purpose
1.
Mudarabah
Profit-sharing
Investment deposit
2.
Musyarakah
Profit and loss sharing
Project financing
3.
Baibithamin Ajil
Deffered payment sale
House financing
4.
Murabahah
Cost-plus
Financing facilities
5.
Al-Ijarah
Leasing
Leasing and vehicle financing
6.
Wadiah
Guaranteed custody
Deposit taking- procedure
5.1.11 Islamic Banking Principle
Al-Wadiah Yad Dhamanah (savings with guarantee)
Al-Mudharabah (profit-sharing)
Al-Musyarakah (joint venture)
Al-Murabahah (cost plus)
Bai' Bithaman Ajil (deferred payment sale)
Bai' al-Dayn (debt trading)
Al-Ijarah Thumma al-Bai' (leasing and subsequently purchase)
Al-Ijarah (leasing)
Al-Qardhul Hassan (benevolent loan)
Bai' as-Salam (future delivery)
Bai' Al-Istijrar (supply contract)
Al-Kafalah (guarantee)
Ar-Rahnu (collateralised borrowing)
Al-Wakalah (nominating another person to act)
Al-Hiwalah (remittance)
As-Sarf (foreign exchange)
Al-Ujr (fee)
Al-Hibah (gift)
5.2 Regulatory Roles of Islamic banking
-The role of Islamic bank are addressing systematic concern and safeguarding customer's interest. The elimination of the interest is based on values of justice, efficiency, stability and growth.
5.2.1 im of the regulatory and legal framework
-The aim of instituting the regulatory and legal framework in Islamic financial system is to preserve financial stability and public confidence.
5.2.2 Legal and regulation framework
Nature of Islamic banking business
Sophistication of Shariah compliance mechanism
Documentation, tax and accounting issues
Nature of Islamic banking business
Scope of Islamic banking influenced by application of different underlying contracts:
Specificities of Islamic financial transaction
Different nature of risk
Shariah compliance mechanism
Continuous compliance
Installing confidence and managing perception
Documentation, tax and accounting issues
Documentation issues- reflect contractual obligations
Tax implications -Shariah requirement
Accounting -AAOIFI and IFSB standardized practices
5.3 Responsibilities of Islamic banking
Ethical investment
Social responsibility
Poverty alleviation
5.3.1 Ethical investment
Recent year, there are an increasing number of investors who seek to align their investments with their principles through ethical and responsible investment. Ethical investment can be the result of positive screening by selecting an investment based on good practices in a particular field, such as in human right or the protection of the environment .For instance, some investment universe result from combination of both positive and negative screening.
5.3.2 Ethics in Islam
Islam requires Muslims to lead their lives based on the Islamic legal code of "Shariah" principles that are expected to follow to the extent possible given their circumstances. The Shariah is the Islamic law of the human conduct which regulates all matters of the lives of Muslims. Islam places the highest emphasis on the ethical values in all aspects of their life. In short, ethics governs all aspects of life of Muslims. The business relations in the mainly ethics based originating from religious belief , trust and faith.
5.3.3 Social responsibility
It is legal for a business to achieve profits, but this goal should be pursued according to "Shariah" principles. Islam stresses on the concept of social responsibility. All Muslims are considered to take care of each others. In Islamic perspective, they are concern on social responsibility and justice on business practices. In Islamic principles, they are avoid the "haram" activities include conventional bank saving and investment deposits, the purchase of interest yielding bonds, and the acquisition of shares in companies.
5.3.4 Poverty alleviation
Islam has made the state as well as the community responsibility to reduce poverty from the society. According to the Islamic perspectives, Islamic bank must take care of the society who is less fortunate in order to maintain equilibrium and social justice. Every Islamic bank has to establish a zakat fund. They collect the tax from investors and depositors. Then, the zakat fund will distribute to the poor categories. The purpose of the zakat is to provide a standard life of good life to the less fortune people. Islamic banks are contributes a large effort to reduce the poverty in a country.
5.3.5 ZAKAT
Zakat is the Islamic religious tax. It is one of the five basic requirements of Islam. All adult Muslims of sound mind and body with a set of income and assets are expected to pay zakat. Zakat is due yearly on certain types of property and is distributed to eight categories of individuals specified by the Qu'ran. There are orphans, the poor, travelers, beggars, debtors, slaves and the efforts to propagate Islam. Zakat is sometimes referred to as sadaqah or sadaqat(plural) . In general, the sharing of wealth is called zakat, whereas the sadaqat could mean the sharing of wealth and sharing of happiness among God's creation such as saying kind words and taking care of animals or environment. Zakat is at different rates. For gold and silver, which is include all liquid assets, the rate is 2.5%. In recent years, Pakistan, Sudan and Saudi Arabia have enacted legislation to enforce the zakat.
5.4 Policies
During 2004, the policy thrust centred on enhancing the institutional infrastructure, regulatory and prudential framework, Shariah and legal infrastructure, as well as consumer awareness and protection.
5.4.1 Anti-Money Laundering Policy
Under all circumstances the Bank will conduct its business in compliance with the following general principles in order to protect the Bank from money laundering & terrorist financing activities:
Comply with applicable anti-money laundering & terrorist financing laws and regulations as established by Bank Negara Malaysia;
Maintain a system of internal control and establish procedure to ensure ongoing AML/CFT compliance and prompt actions;
Appointment of Designated Compliance Officers (DCOs), who are responsible to implement AML/CFT procedures and measures;
Develop compliance program to ensure awareness on AML/CFT procedures and requirements and monitoring of AML/CFT measures;
Establish customer due diligence for all customers including implement Know Your Customer (KYC) Policy and enhanced due diligence for customers and transactions presenting higher risk;
Establish and maintain appropriate procedures to monitor customer accounts and activities for evidence of suspicious transactions that may be indicative of money laundering activities;
Retain identification and transactional documentation as defined in the legislation;
Report to relevant authority in a timely and comprehensive manner on all identified suspicious activities where there are reasonable grounds to suspect that a money laundering offence has been or is being committed;
Cooperate fully with law enforcement and regulatory authorities on AML/CFT issues.
5.5 Registration
The application must be submitted and signed by the applicant and addressed to
Islamic Banking and Takaful Department, Bank Negara Malaysia, 6th Floor, Block A, Jalan Dato' Onn, 50480 Kuala Lumpur, Malaysia.
The legal basis for the establishment of Islamic banks was the Islamic Banking Act (IBA) which was established on 7 April 1983.The IBA provides BNM with powers to supervise and regulate Islamic bank.
Islamic banking system requires three important elements to qualify as a strong system
A large number of global players
A broad variety of instruments
A comprehensive financial infrastructure.
5.5.1 Application for Islamic Banking license
Section 1: Details of applicant
Section 2: Background information
Section 3: Financial strength and soundness
Section 4: Plans for Malaysian operations
Section 5: Regulatory system in home country
Section 6: Supporting Documents
5.6 Securities
Dealing in securities
Dealing in debentures, stocks or bonds of Federal Government, any state Government or statutory body and corporate debentures or other instruments which are not listed for trading stock exchange.
Arranging the sale or purchase of securities through the holders of a Capital Market services License who carries on the business of dealing in securities.
Underwrite the securities and placement
Private placement of primary issues of securities on behalf of customers
Arranging or offering for sale or purchase as agent for any person
Act as agent for any issuing house in relation to the issue or listing of any securities
Lending or borrowing of securities on own account for customers
5.7 Power of attorney
Power of attorney (POA) is an authorization to act on someone else's behalf in a legal or business transaction. The person authorizing the other to act is the granter, and the one authorized to act is the agent.
5.7.1 Wakalah
It is a contract whereby a person (principal) asks another party to act on his behalf for a specific task. The person who take this task is an agent who will be paid a fee foe his services.
Example
A customer ask bank to pay some one under certain terms. The bank is the agent that carrying out the financial transaction .The customer will paid a fee to the bank for his services.
5.7.2 Conditions of Wakalah
The principal should have the power and competence to deal and own the property. If the principal is not competent to perform a certain action, he cannot delegate the doing of that action to another person. For example, an insane or a minor cannot appoint agents to act on their behalf.
The agent should also be a competent person.
The thing or act should be known. This is to avoid uncertainty or gharar.
That the action is a lawful action.
5.7.3 The Types of Al-Wakalah
An agent's authority is derived and defined by the particular type of agency he undertakes. Wakalah can be divided into the four types.
Particular Wakalah or Special Agency
-Particular wakalah is made only for a certain known transaction. For example, buying or selling certain known house or a car. The agent is bound to sell or buy that particular house or car.
General Wakalah
-It is a general delegation of power. For e.g. if the principal says: buy for me a house which you think is proper or suitable. In this case the agent owns all the power which the principal has.
Restricted Agency
-Restricted Agency means that the agent has to act within certain conditions. For e.g. buy the house at such a price, or until such a time or based on instalments. The agent has to strictly observe these conditions. If the conditions are not met the transaction is not binding on the principal.
Absolute agency
-Where there are no condition is put for the transaction. For example if the principal assigns an agent to buy a house and he does not specify the price, the method of payment or other conditions. However, an agent is still bound to act within the prevailing practices and customs. Imam Abu Hanifah argues that an agent is not bound by the customs. Customs, he says, differs from place to place. However, according to his two disciples and the majority, the agent is bound by the custom common among the people. If he acts contrary to the custom, then the transaction depends on the approval of the principal.
Conventional Banking
5.1 Law and regulation
5.1.1 Banking and Financial Institution Act 1989 (BAFIA)
5.1.2 Objective of BAFIA
-to provide new laws for the licensing and regulation
-to provide for an integrated supervision of the Malaysian financial system
-to provide the Central Bank with the power to investigate and prosecute
5.1.3 BAFIA 1989
BAFIA was established on 1st October 1989. The BAFIA repealed the Banking Act 1973 and Finance Companies Act 1969and modernises the law related to banking and other institutions.
Section 123: BAFIA shall not affect from the provision of the Exchange Control Act
Section 124: BAFIA shall not apply to an Islamic Bank
5.1.4 Three groups of institution under BAFIA
Licensed institution
-commercial banks, finance companies, merchant banks,discount houses and money brokers.
b. Scheduled institution
-credit and charge card companies building societies factoring and leasing companies and development finance institution (DFI).
c. Non-scheduled institution
-institution engaged in the provision of finance except those named above.
5.1.5 Objectives of bank regulation:
Prudential
-to reduce the level of risk bank creditors are exposed to For example, it helps to protect the depositors
Systemic risk reduction
-to reduce the risk of disruption resulting from adverse trading conditions for banks causing multiple or major bank failures
Avoid misuse of banks
-to reduce the risk of banks being used for criminal purposes, e.g. laundering the proceeds of crime
To protect banking confidentiality
Credit allocation
- To direct credit to favored sectors.
5.1.6 Licensing
A licensed finance company is permitted to carry out the business of:
receiving deposits on deposit account, savings account or other similar account ; and
(i) the lending of money;
(ii) leasing;
(iii)hire-purchase, including that which is subject to the Hire-Purchase Act, 1967
other business as the Central Bank may prescribe
5.1.7 Financial Requirement
Every licensed institution is requires maintaining:
General reserve
Statutory reserve
Liquidity ratio
Capital adequacy ratio
Any amount of assets
5.1.8 Legal Framework in Deposit account
Although restrictions placed on access depend upon the terms and conditions of the account and the provider, the account holder retains rights to have their refund. The customer may or may not be able to pay the funds in the account by cheque, internet banking, EFTPOS or other channels depending on those provided by the bank and offered or activated in respect of the account.
The banking terms "deposit" and "withdrawal" tend to obscure the economic substance and legal essence of transactions in a deposit account. From a legal and financial accounting standpoint, the term "deposit" is used by the banking industry in financial statements to describe the liability owed by the bank to its depositor, and not the funds (whether cash or checks) themselves, which are shown an asset of the bank.
Example
-A depositor opening a checking account at a bank in the United States with $100 in currency, which becomes an asset of the bank. On the bank's books, the bank debits its currency and coin on hand account for the $100 in cash, and credits a liability account for an equal amount. In the audited financial statements of the bank, on the balance sheet, the $100 in currency would be shown as an asset of the bank on the left side of the balance sheet, and the deposit account would be shown as a liability owed by the bank to its customer, on the right side of the balance sheet. The bank's financial statement reflects the economic substance of the transaction -- which is the bank, has actually borrowed $100 from its depositor and has contractually obliged itself to repay the customer according to the terms of the demand deposit account agreement. To offset this deposit liability, the bank now owns the actual, physical funds deposited, and shows those funds as an asset of the bank.
Typically, an account provider will not hold the entire sum in reserve, but will loan the money at interest to other clients, in a process known as fractional-reserve banking. It is this process which allows providers to pay out interest on deposits.
By transferring the ownership of deposits from one party to another, they can replace physical cash as a method of payment. In fact, deposits account for most of the money supply in use today. For example, if a bank in the United States makes a loan to a customer by depositing the loan proceeds in the customer's checking account, the bank typically records this event by debiting an asset account on the bank's books and credits the deposit liability or checking account of the customer on the bank's books. From an economic standpoint, the bank has essentially created economic money. The customer's checking account balance has no dollar bills in it, as a demand deposit account is simply a liability owed by the bank to its customer. In this way, commercial banks are allowed to increase the money supply.
5.2 Regulatory roles
Malaysia's banking and insurance sector
-under the jurisdiction of Central Bank /Bank Negara Malaysia
Capital market
-regulate by the Securities Commision Malaysia (SC)
Offshore finance industry
-Labuan Financial Services Authority ( Labuan FSA)
Trading activities in Malaysia
-regulate and operate by Bursa Malaysia
5.2.1 Labuan (International Offshore Financial Centre)
Labuan was declared as an International Offshore Financial Centre (IOFC) in October 1990 to complement the activities of the domestic financial market in Kuala Lumpur, strengthen the contribution of financial services to Gross National Products of Malaysia as well as develop the island and areas within its vicinity. Specifically designed legislation and regulations, primarily based on experiences of other IOFCs around the world, provide the framework for business in the IOFC ( International Offshore Financial Centre).
5.2.2 Securities Commision Malaysia (SC)
Securities Commision Malaysia was established on 1 March 1993 under the Securities Commission Act 1993, the Securities Commision Malaysia (SC) is a self-funding statutory body with investigative and enforcement powers. It reports to the Minister of Finance and its accounts are tabled in Parliament annually.
Its regulatory functions are listed below:
Supervising exchanges, clearing houses and central depositories
Registering authority for prospectuses of corporations other than unlisted recreational clubs
Approving authority for corporate bond issues
Regulating all matters relating to securities and futures contracts
Regulating the take-over and mergers of companies
Regulating all matters relating to unit trust schemes
Licensing and supervising all licensed persons;
Encouraging self-regulation
Ensuring proper conduct of market institutions and licensed persons.
5.3 Responsibilities
Corporate Governance
5.3.1 Objective:
-The objective of corporate governance is to promote the adoption of effective and high standards of corporate governance practices by Licensed Institution and Bank Holding Company.
5.3.2 Important of Corporate Governance
To ensure that the Licensed Institution are managed safely in order to maximize Shareholder's wealth and protect the interests of all stakeholders. Effective corporate governance practices will enhance corporate accountability.
Used to direct and manage the business and affairs in order to enhance business prosperity and corporate accountability.
5.3.3 The major responsibilities of Licensed Institution:
Review and approve strategies, business plans and significant policies and monitor management's performance
-An institution should clearly state its objectives, which takes into account the institution's risk appetite and its risk management capabilities, and devise a business strategy and plans for achieve them.
-The board should approve these objectives, strategies and business plans, and ensures that performance against plans is regularly reviewed and monitored.
-They also establish key performance indicators (KPIs) to define, measure the performance and progress towards achieving organisational goals.
Set corporate values and responsibility that are communicated through the organisation
-The board should establish a culture of high ethical standards and integrity, professional conduct and approve corporate values for itself.
-The high standard of ethical will benefit the Licensed Institution. This is because it will enhance the License Institution's creditability and trustworthiness in its day-to- day and long term operations.
Ensure competent management
-The board should make sure that there is a managed and effective process to select the officers that are qualified, professional and competent to the affairs of the Licensed Institution.
Ensure that the operation are conducted prudently and within the laws and regulations
-The board should ensure that the internal control systems of the Licensed Institution are effective and the operations are properly controlled.
-They also should use the external and internal auditors to review the adequacy of the internal controls.
Ensure that the Licensed Institution established comprehensive risk management policies, processes and infrastructure.
-The board should have a sound understanding of the Licensed Institution's business operating environment and the related risks. It is important for Licensed Institution to identify measure, monitor and control the various types of risks.
- They should approve and review the risk management capabilities of the Licensed Institution.
-They also should ensure the management information system is reliable and adequate in order to cover the activities of Licensed Institution.
Set up an effective internal audit department which staffed with qualified internal personnel
-To enhance the independence of the internal auditors to achieve their audit objectives and ensure that the internal auditors have full access to all records.
Establish procedure to avoid self-serving practices and conflict of interest
-The board should establish policies and procedures governing related party transactions and conflict of interest situations.
-They should ensure that the senior management implements policies that prohibit activities and relationships that diminish the quality of corporate governance.
-They also should approve a set of ethical corporate values in the form of code that conduct by the Licensed Institution.
Ensure that the Licensed Institution has a beneficial influence on the economic
-The board has a continuing responsibility to the community to ensure that the Licensed Institution's activities are conductive towards promoting the economic.
5.4 Policies Requirement
Statutory Reserve Requirement (SRR) is a monetary policy instrument available to Bank Negara Malaysia for the purposes of liquidity management. Commercial banks, merchant banks, investment banks and Islamic banks are required to maintain balances in their Statutory Reserve Account (SRA). The SRR is used to withdraw or inject liquidity when the excess or lack of liquidity in the banking system is perceived by the Bank to be large and long-term in nature.
5.4.1 Penalties
Any banking institution which fails to comply with the minimum SRR requirement shall be liable to pay a penalty. The penalty payable is determined as the sum of the scaled penalty amount and the monetary benefit. The computation of the maximum penalty is as follows:
